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Sovereign funds boosting alternative investments

$6B global wealth manager aiming to boost returns with alts

Sep 30, 2013 @ 9:45 am

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Sovereign wealth funds, which control about $6 trillion of wealth globally, are boosting investments in alternative assets like real estate and private equity to boost returns, a survey by Invesco Ltd. found.

The wide swings in equity prices and the “market-wide dissatisfaction with risk-return profile of equity investing,” together with low interest rates on fixed-income products, has pushed government-controlled funds to consider alternative assets to enhance growth, Invesco said in a report released in Dubai today. Alternative investments include international and local private equity, real-estate, hedge funds, infrastructure and commodities, according to the report.

Alternative investments made up 21% of the total assets of sovereign wealth funds in the west and these assets rose 26% in value over the last 12 months. The 29 surveyed funds, which controlled about 80% of global sovereign wealth fund assets, expected average annual returns of 8% from alternative assets, compared with 7% from equities, 4% from bonds and 2% from cash.

“There is also an increasing trend of direct investment in private equity rather than through third party funds,” Nick Tolchard, Invesco's managing director for sovereign investors, told a news conference today. Middle East sovereign funds including the Abu Dhabi Investment Authority and the Kuwait Investment Authority held about $2 trillion in assets, he said.

Invesco had $705.6 billion of assets under management at the end of June. Its second-quarter profit rose 32% to $202.6 million as equity market gains boosted assets.